Politicians speak a great deal about income taxes, and corporate taxes, and death taxes, and sales taxes, and any other type of taxes you can think of. And for good reason. It’s the money we earn by selling goods or services that other people want that is taken by the federal government to do what we tell it to do (or at least that’s how it should work). But young adults are facing a tax that no generation before it has ever paid, and literally no one is talking about it.
I’m talking about Medicare and Social Security. Sure, every generation has paid payroll taxes that go to fund the benefits of current recipients and retirees. But every generation has also gotten out far more than they paid in. For instance, according to the Urban Institute, a two-earner couple receiving an average wage and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in earnings. If the same couple retired in 1980 would have gotten three times what they put in, and in 1960 gotten back eight times what they paid in.
But that situation is quickly changing. The financial position of the two programs is rapidly eroding and their trust funds evaporating, leaving younger generations with questions about whether they’ll be able to take advantage of the benefits that previous generation have come to rely on.
A recent Reason/Rupe poll found that more than half of millennials aged 18 to 29 believe that Social Security is unlikely to exist at all by the time they reach full retirement. Only about a third of millennials believe they’ll receive the same benefits that Social Security pays now. Those findings were paralleled by a Pew survey, in which 51 percent of young adults said they’d receive no benefits from Social Security and 39 percent said they’d get reduced benefits.
This year’s Social Security and Medicare Trustees reports suggests that young adults are right to be skeptical of the program’s finances. The Wall Street Journals Nick Timaraos reports:
The annual report card from the programs’ trustees said Medicare’s hospital-insurance trust fund, which provides coverage to more than 55 million Americans, will exhaust its reserves by 2028, two years sooner than estimated last year.
Social Security faces depletion by 2034, which would trigger a 21% across-the-board benefit cut if Congress doesn’t act. More than 49 million Americans collected retirement benefits through the program last year, and nearly 11 million received payments from a separate disability-insurance program.
The financial challenge faced by both programs is largely a result of changing demographics. As baby boomers retire, the number of Social Security beneficiaries and Medicare recipients will climb sharply, even as the number of workers, whose contributions fund the programs, stays relatively flat. For instance, the Social Security trustees find that by 2034, the total number of beneficiaries will hit 88 million, a 45 percent increase compared to 2016, while the ratio of workers-to-beneficiaries plummets roughly from 3-to-1 to 2-to-1.
Medicare is in a worse position because of the compounding problem of medical inflation. The trustees predict that within 25 years there will be 83 million Americans older than 65, an enormous increase from the 31 million in 1990. As Americans live longer they spend more time on Medicare, and they tend to be more costly beneficiaries, which will push Medicare spending from 3.6 percent of GDP today to 5.6 percent in 2040—an increase of nearly 60 percent. The American Action Forum finds that Medicare Part A (hospitals) would need a 16 percent increase in its payroll tax to balance its budget. Furthermore, Medicare premiums would need to increase by a combined $5,968 in order to balance the budgets of Medicare Part B (physicians) and Part D (drugs).
Benefit cuts. Payroll tax hikes. Premium increases. This is not the future that young adults should be resigned to, especially since we’re being asked to pay for these programs as if they will exist in their present state.
When President Lyndon Johnson, the architect of the New Deal-era social welfare programs, signed Medicare into law he said: “No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out deep moral obligations to their parents, and to their uncles, and their aunts.”
And yet, 40 years later, that’s exactly the future we face. Without reform, these programs are putting us right back on the path they were created to avoid.